Washington, D.C., June 22, 2016—It’s that time of the year when the projected shortfall in Social Security benefits elicits calls for cutting them as a solution to make the program solvent in the long term. Those calls are misguided and the cuts would be devastating to economically vulnerable populations, such as people of color and lower income populations who are least likely to have any other form of retirement wealth.
The vast majority of retirees rely heavily on Social Security, especially since half of working Americans do not have access to employer-sponsored retirement accounts. People of color are disproportionately among those working in jobs that don’t provide a tax-preferred retirement savings vehicle to employees.
Also, too few with 401(k)-style retirement accounts have enough savings in them to tide them over for the entirety of their retirement years. Social Security retirement benefits, on the other hand, will never run out and are adjusted annually for inflation. The program makes up an average of 52 percent of household income for those who are 65 and older, continuing to be the largest piece of household income for retirees. Sixty-five percent of aged beneficiaries receive at least half of their income from Social Security. Forty-six percent of African Americans rely on it for more than 90 percent of their retirement income.
We can address the projected shortfalls by scrapping the cap on the wages subject to FICA taxes. This is justified because the current cap, of $118,500, has not kept up with the dramatic growth in wages for the nation’s highest income workers. The Social Security trust funds have also not been able to benefit from the growth in unearned income received by wealthy individuals.
We can also fix the shortfall by making the benefit formula less generous for high earners; adding all new state and local workers to the program; and slowly raising Social Security’s payroll tax by 1/40th of one percent over 20 years. All these proposals are detailed in “Plan for a New Future: The Impact of Social Security Reform on People of Color.”
With the nation’s changing demographics, we need to be mindful of how proposed reforms to Social Security will affect vulnerable households, including the economic security of future generations of racially and ethnically diverse retirees.
The Center for Global Policy Solutions is a 501(c)(3) think tank and action organization that labors in pursuit of a vibrant, diverse, and inclusive world in which everyone has the opportunity to thrive in safe and sustainable environments.